THE most pressing problem facing Lesotho today is the absence of sustained economic growth and job creation, which are essential factors to the reduction of poverty and improvement of general living conditions of our people.
In my previous columns I touched on growth and employment as subtopics of entrepreneurship and sectoral analysis of the economy but this will be the first time I give these two important aspects of the economy their own stage.
Most economics textbooks will state that the objectives of economic growth and employment are arguably the two most crucial in any economy.
And since they are so inextricably intertwined, I felt the need to address them both in this week’s post.
What the events of the last few years have demonstrated clearly is that the challenges for Lesotho are wide and varied, although the country has in recent times experienced political peace and consistent growth, two things not that common in our checkered history as a nation.
What lies ahead is the daunting task of ensuring that Lesotho’s rich natural and human resources are employed for the benefit of all, promoting sustainable livelihoods, improving social conditions, and alleviating poverty.
Inheriting an economy in disarray and faced with external pressures and questions over credibility, following the 1998 riots, the new LCD government was forced to concentrate on macro policy concerns, especially the establishment of a credible and prudent fiscal stance, efforts to reduce inflation and increase trade.
These they did quite well and Lesotho has gained credibility as a burgeoning democracy in the developing world.
The subsequent policy perseverance has yielded tangible macro stabilisation successes and enhanced policy legitimacy.
However, the growth-and-employment challenge facing Lesotho is a daunting one.
Investment rates are low, FDI inflows disappointing, and the unfinished agenda of structural reforms leaves Lesotho at a disadvantage within an increasingly competitive global environment.
Despite the macroeconomic achievements, concerns over slow growth and employment trends are widespread and growing.
Throughout the 1990s, amidst growth formal employment stagnated, and unemployment rose relentlessly, reaching 40 percent of the working age population, according to estimates.
The turbulence which has rocked international financial markets over the last few years has affected Lesotho as well, damaging confidence, slowing recovery and threatening macro stability.
And the rapid spread of the HIV/Aids pandemic in Lesotho already threatens the hard-won health and social service delivery gains of recent years, and poses an even more fundamental challenge to long-term poverty reduction.
Uneven progress on policy reforms that focus on improving productivity and competitiveness has limited the economic response.
In a broad economic context, productivity refers not only to the efficiency with which primary production factors are combined, but also how well economic activity is supported by the underlying incentive structure and enabling environment.
In practical terms, this suggests the need for further attention to key areas of policy concern, such as the trade regime, competition policy, privatisation, exchange rate management and foreign exchange controls, public expenditure policies, human capital development, etc.
While the government has made progress in these areas, that progress has been uneven.
The unfinished agenda remains substantial, and adversely affects efforts to make the economy more productive.
While there is no “quick fix” for the difficulties facing the Lesotho economy, there are nevertheless numerous areas in which concerted action can generate forward momentum and over time, make a sizeable difference for growth and employment creation.
While the proposed policy measures cover numerous aspects of the economy, the underlying theme is the over-arching need to improve the investment climate for physical and human capital in Lesotho.
Some of the constraints to investment include, cost of capital and credit, crime and theft, volatility of the Loti, corruption and administrative costs and shortage of skilled labour.
Most of the aforementioned challenges are structural in nature and hence require long-term solutions.
In many respects, Lesotho would appear to provide an attractive investment climate.
It is a “developing,” state and enjoys a mature relationship with international capital markets.
For the most part Lesotho has delivered sound macro fundamentals and it has been praised for managing the deficit, pursuing a prudent external borrowing strategy, controlling public expenditure, reducing inflation and improving access to information.
While most measures that improve the investment climate for domestic investors will likely also encourage inward flows of FDI, the responses need not be equivalent, as confirmed by the experience of many countries which fail to attract FDI even after adopting many of the “right” policies.
What seems generally true is that foreigners will rarely choose to invest in situations where domestic investors lack the confidence to invest locally themselves.
The local bond market as well as the breadth of other financial products has to be developed further in terms of both size and liquidity to match trends in other developing nations and involve the local community.
Other crucial factors such as the general business framework (ease of entry and exit, fairness and speed of dispute settlement), existence of supply networks, adequacy and cost of infrastructure, and availability and quality of technical and professional services will determine the trajectory of Lesotho’s growth path going forward, and hence will have to be given due diligence.
Lechesa is a freelance writer based in Maseru
